Base Metals Market Update – August 2013

Metals prices remain well below peaks recorded earlier in the year but have seen some support recently from more upbeat economic data, particularly from the large advanced economies, although China is showing early signs of stabilising as well.

Metals prices remain well below peaks recorded earlier in the year but have seen some support recently from more upbeat economic data, particularly from the large advanced economies, although China is showing early signs of stabilising as well.

In aggregate, base metal prices are 4% higher in August to date to be around 2% lower over the year. Annual price movements vary across the metals complex.

With growth in the US gradually recovering in line with our expectations, it appears likely that the US Fed will begin to taper its asset purchasing program soon, removing support from commodity markets over coming months. We expect tapering to commence in September but this will be data dependent.

Metals markets will be in surplus in 2013, as a result of increasing metal supplies and slower anticipated demand growth. This shift in market fundamentals combined with elevated inventory levels, will keep metals prices susceptible to any negative demand side shocks.

The NAB Base Metals Index (BMI) is expected to decline by around 1¼% in the September quarter. Prices will recover gradually later in the year and into 2014.

About the Author

James joined NAB early in 2011 from the Reserve Bank of Australia where he worked for four years. He was involved in analysis of overseas economies and commodities, as well as business investment and residential property within Australia.

Before this, James taught economics at the University of Western Sydney, and was employed as an economic forecaster with Integral Energy.

He graduated from the University of Western Sydney (with first class honours in Economics) and was a recipient of the Honours Economic Society Award (HESA) in 2006. James also holds a Bachelors degree in Law.

At NAB, James is responsible for monitoring and forecasting the emerging Asian economies with a particular emphasis on China, and is also a member of the commodities team.

In today’s Weekly we preview what to expect for the RBA’s forecasts and the narrative and risk around its outlook for the economy. We’re likely to see the Bank wind back the growth outlook and trim its inflation forecasts.